American Airlines 1998 Annual Report Download - page 45

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INTANGIBLE ASSETS Route acquisition costs and airport
operating and gate lease rights represent the purchase price
attributable to route authorities, airport take-off and landing
slots and airport gate leasehold rights acquired. These assets
are being amortized on a straight-line basis over 40 years
for route authorities, 25 years for airport take-off and
landing slots, and the term of the lease for airport gate
leasehold rights.
CAPITALIZED SOFTWARE In March 1998, the American
Institute of Certified Public Accountants issued Statement of
Position No. 98-1, “Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use” (SOP 98-
1), effective for fiscal years beginning after December 15,
1998. SOP 98-1 requires the capitalization of certain costs
incurred during an internal-use development project. The
adoption of SOP 98-1 is not expected to have a material
impact on the Company’s financial position or results of
operations.
PASSENGER REVENUES Passenger ticket sales are initially
recorded as a component of air traffic liability. Revenue
derived from ticket sales is recognized at the time trans-
portation is provided. However, due to various factors,
including the complex pricing structure and interline
agreements throughout the industry, certain amounts are
recognized in revenue using estimates regarding both the
timing of the revenue recognition and the amount of rev-
enue to be recognized. Actual results could differ from
those estimates.
ELECTRONIC TRAVEL DISTRIBUTION REVENUES
Revenues for airline travel reservations are recognized at
the time of the booking of the reservation, net of estimated
future cancellations. Revenues for car rental and hotel book-
ings and other travel providers are recognized at the time the
reservation is used by the customer. Fees billed on service
contracts are recognized as revenue in the month earned.
INFORMATION TECHNOLOGY SOLUTIONS REVENUES
Revenues from information technology services are recognized
in the period earned. Revenues from software license fees for
standard software products are recognized when the software
is delivered, fees are fixed and determinable, no undelivered
elements are essential to the functionality of delivered software
and collection is probable. Revenues on long-term software
development and consulting contracts are recognized under
the percentage of completion method of accounting. Losses,
if any, on long-term contracts are recognized when the cur-
rent estimate of total contract costs indicates a loss on a
contract is probable. Fixed fees for software maintenance are
recognized ratably over the life of the contract.
ADVERTISING COSTS The Company expenses the
costs of advertising as incurred. Advertising expense was
$216 million, $204 million and $203 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
FREQUENT FLYER PROGRAM The estimated incremental
cost of providing free travel awards is accrued when such
award levels are reached. American sells mileage credits and
related services to companies participating in its frequent
flyer program. The portion of the revenue related to the sale
of mileage credits is deferred and recognized over a period
approximating the period during which the mileage credits
are used.
STATEMENTS OF CASH FLOWS Short-term investments,
without regard to remaining maturity at acquisition, are
not considered as cash equivalents for purposes of the
statements of cash flows.
STOCK OPTIONS The Company accounts for its stock-
based compensation plans in accordance with Accounting
Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees” (APB 25) and related Interpretations.
Under APB 25, no compensation expense is recognized for
stock option grants if the exercise price of the Company’s
stock option grants is at or above the fair market value of
the underlying stock on the date of grant.
AMR CORPORATION